The Department of Health and Human Services rolled out proposed regulations Thursday laying out exactly how states can apply to get a waiver from major pieces of the health care law, including state insurance exchanges and a requirement that individuals buy health insurance.

The HHS announcement comes just over two weeks after President Obama backed bipartisan legislation from Sens. Ron Wyden, D-Ore., and Scott Brown, R-Mass., to move the waiver date in the law from 2017 to 2014. Obama's announcement was widely characterized as an effort to soothe state governors' concerns over the cost of Medicaid eligibility requirements enshrined in the health law.

While the regulations released Thursday do not specifically apply to Medicaid eligiblity, they do leave room for states to jigger the "essential benefits" package insurance companies must offer to qualify for state insurance exchanges. Exactly what benefits are "essential" has yet to be determined by the federal government. The Institute of Medicine is now studying how HHS should select which treatments to include.

"States could demonstrate an alternative package of benefits," said HHS's Steve Larsen, who heads the agency's office overseeing insurance regulation and state exchanges. "We're not at the point where we're going to speculate exactly how that would happen, but we really are looking for states to innovate."

The proposed rules would require states wanting waivers to first pass a law that codifies their health overhaul plans. States would then go to HHS Secretary Kathleen Sebelius and prove through actuarial certificates their plans would provide coverage that is as comprehensive and affordable as those offered on insurance exchanges, cover at least as many people as the federal government plan, and not increase the federal deficit.

If states qualify for a waiver, they will have to submit quarterly and annual reports to HHS tracking how many people are covered, how affordable and comprehensive coverage is, and the impact of the federal deficit.

"The proposed rules lay out the steps states would need to take to allow states to get innovation waivers," said Larsen. "It closely tracks the legislation language and sets out the general rules of the road."

HHS was careful to emphasize that insurance companies could not use the waiver process to wriggle out of certain health law requirements, like a ban on lifetime limits on coverage or providing preventive care without cost sharing.

"It's important to keep in mind that Americans will continue to be protected from the worst insurance company abuses," said Chiquita Brooks-LaSure, director of coverage policy in HHS's Office of Health Reform.

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